The revised Pharmaceutical Price Regulation Scheme (PPRS) announced by the government and industry yesterday will reduce the prices of prescription drugs to the National Health Service (NHS) by 3.9% from February 1, and by a further 1.9% in January 2010. Under the “original heads of agreement” announced during the PPRS re-negotiations in June, prices were due to drop 5% from next January, with a further, one-off 2% reduction in 2010 or 2011 if the NHS drugs bill were to grow faster than 6.7% in either 2008 or 2009, but this provision has now been scrapped.

The new deal also throws out earlier agreed loss of exclusivity (LoE) measures linking the prices of out-of-patent branded drugs to the price of any branded generics, so companies will be able to generate discounts from both in-patent and patent-expired drugs - and will instead introduce generic substitution from January 10.

The changes have been made “to simplify the Scheme, while ensuring that the intent of the heads of agreement is met,” say the Department and the ABPI. Last month, industry spokesmen were enraged by the Department’s announcement that it wanted a public consultation on how the LoE provisions would apply to individual medicines, which would delay this part of the PPRS by at least three months. There have also been warnings of severe medicines shortages this winter as wholesalers have been running down their stocks ahead of the new Scheme, although another factor here has been the significant increase in parallel trade out of the UK, due to the steep slide in the pound’s value against the euro.

Other novel features of the new PPRS include a flexible pricing system and initiatives to encourage and reward innovation, assist in the uptake of cost-effective new medicines and encourage drugmakers to use patient access schemes.

Dr Richard Barker, director general of the Association of the British Pharmaceutical Industry (ABPI), yesterday described the deal as a “landmark” which “marks a turning-point for patients, the NHS and the pharmaceutical industry.”

“For the first time, the PPRS is much more than a simple economic agreement that looks at price alone. It is an all-encompassing package that encourages the discovery of new, more effective medicines, while at the same time allowing NHS patients to access these treatments more quickly,” he said.

A more flexible approach to pricing “is in everyone’s interest,” added Health Secretary Alan Johnson. “It gets clinically- and cost-effective drugs to more patients – providing cheaper options where clinically appropriate – delivers value for money for the NHS and the taxpayer and creates a better market for the pharmaceutical industry, while supporting research and innovation,” he said.

The Department adds that the deal “meets commitments set out both in Lord Darzi’s review of the NHS earlier this year and the National Cancer Director’s review of access to medicines. It also reflects the Office of Fair Trading’s recommendation that value should be better reflected through the PPRS.”


The new Scheme will commence on January 1, as planned, but the 3.9% price cut will take place a month later to allow further time for arrangements to be put in place.

There will be further price adjustments – a 1.9% cut in January 2010, not contingent on the growth of the drugs bill - plus increases of 0.1% in January 2011, 0.2% in January 2012 and 0.2% in January 2013.
The Department aims to introduce generic substitution in January 2010, with certain exemptions. Both government and industry will be able to call for a review of the savings being delivered if the price cuts and generic substitution appear to be over- or under-delivering on the 5% reductions sought over the Scheme’s lifetime.

Flexible pricing and patient access

Under the new flexible pricing arrangements, companies will still set the initial launch price for New Active Substances (NAS), but they will now be able to increase or decrease this price as either further evidence or new indications change the value that the medicine provides to patients. However, these arrangements will only apply when products are subject to National Institute for Health and Clinical Excellence (NICE) appraisal to determine whether the revised price provides value. NICE will not negotiate, or publicly set or indicate, prices.

This initiative is a “significant step forward in helping cancer patient access the most appropriate drugs for their treatment,” said Harpal Kumar, chief executive of Cancer Research UK. It will enable NICE to recommend more new cancer drugs for use on the NHS, he said, adding: “pharmaceutical companies with confidence in the new treatments they are developing shouldn’t be frightened of schemes aimed at pricing treatments according to their benefit.”

Aisling Burnard, chief executive of the BioIndustry Association (BIA), suggested that the flexible options for market access, which build on the central principle of freedom of pricing, “could facilitate clinical development of biological medicines that have already been approved for one indicating in other indications.”

The new arrangements for patient access schemes will be subject to certain conditions “to ensure they are implemented sensibly and that the cumulative burden on the NHS is manageable,” say the Department and the ABPI.

Help for smaller firms

Meantime, the R&D allowance is to be increased to a maximum of 30% of NHS sales for assessing Annual Financial Returns (AFRs) and, in the last few days, agreement has been reached to raise the threshold for AFR reporting to £35 million. This is welcomed by Leslie Galloway, chairman of the Ethical Medicines Industry Group (EMIG) which represents small and medium-sized pharmaceutical companies, who said it “will increase the viability of smaller companies within the sector and ensure that smaller pharmaceutical companies can continue to provide high value and low cost medicines to patients.”

However, Mr Galloway added that the introduction of generic substitution “is likely to impact EMIG members differently,” and he said that the group “will need to carefully consider the details of this proposal as they become available to analyse the effect it will have.”

Uptake of innovation and assessment of value

Finally, the new agenda to encourage and reward innovation and assist the uptake of cost-effective medicines will be monitored through the Ministerial Industry Strategy Group (MISG). Initiatives will include: - establishing a single unified horizon-scanning process; - addressing the anomaly where the funding direction does not apply to NICE technology appraisal recommendations, which are subsequently updated in a clinical guideline, and updating good practice guidance on funding decisions in the absence of NICE guidance; - piloting the use of prescribing incentives schemes to promote uptake of innovative medicines; - exploring how to optimize the use of existing levers such as Payment by Results to further improve uptake; and - publishing metrics on the uptake of clinically- and cost-effective medicines at local, national and international level.